The Impact of Sluggish Hiring and Declining Job Openings on Cyclical Sectors

The U.S. labor market has entered a cooling phase, with job openings and hiring rates in cyclical sectors signaling a structural shift. According to the Bureau of Labor Statistics (BLS), total job openings in July 2025 fell to 7.2 million, a 2.7% drop from June and the lowest level since September 2024 [1]. This decline, driven by contractions in health care (-181,000), arts and recreation (-62,000), and manufacturing (-8,000), reflects a broader slowdown in sectors tied to economic cycles [2]. Meanwhile, the quits rate—long a barometer of worker confidence—remained steady at 3.2 million, suggesting that while hiring has stalled, labor mobility persists [1].

The implications for cyclical sectors are stark. Data from the Labor Market Recap for May 2025 reveals a pronounced shift in job growth toward acyclical industries like education and healthcare, while manufacturing and trade-exposed sectors face headwinds from tariffs and trade war uncertainties [4]. For instance, employment in residential specialty trade contractors fell by 11,000 jobs in May, underscoring the fragility of sectors reliant on consumer and business spending [1]. The JOLTS report for July further confirms this trend, with hiring rates (5.3 million) and separations (5.3 million) in equilibrium, signaling a labor market in transition [3].

Amid this backdrop, investors are turning to undervalued momentum stocks in cyclical sectors for potential upside. Morningstar’s analysis highlights Hanesbrands (HBI) and Adient (ADNT) as compelling opportunities. Hanesbrands, a narrow-moat consumer cyclical company, trades at a 70% discount to its estimated fair value of $16.30 per share, with a Price/Fair Value ratio of 0.30 [1]. Its Q2 2025 results underscore resilience: net sales rose 1.8% to $991 million, gross margin expanded by 1,100 basis points to 41.6%, and operating profit surged 345% to $155 million [1]. Despite challenges in U.S. intimates markets and foreign exchange headwinds, the company raised its full-year outlook, citing margin expansion and debt reduction [5].

Adient, another undervalued player, trades at 66% below its fair value of $64 per share (Price/Fair Value: 0.34) [1]. While its financials are less detailed in the provided data, its valuation discount and exposure to automotive manufacturing—a sector grappling with trade policies—position it as a speculative play if global trade tensions ease.

The broader consumer cyclical sector, however, remains under pressure. The Morningstar US Consumer Cyclical Index has declined 1.10% year-to-date, lagging the 9.10% gain of the broader US Market Index [1]. This underperformance is exacerbated by surging tariffs, which have dampened demand for goods and services in trade-exposed industries [5]. Yet, the sector’s current valuation levels suggest potential for mean reversion, particularly if economic conditions stabilize or trade policies shift.

For investors, the key lies in balancing risk and reward. Cyclical sectors are inherently sensitive to macroeconomic trends, and the current labor market dynamics—marked by declining job openings and sluggish hiring—heighten volatility. However, companies like Hanesbrands demonstrate that disciplined cost management and operational efficiency can create value even in challenging environments. As the Federal Reserve’s rate hikes and trade uncertainties continue to shape the landscape, undervalued momentum stocks in cyclical sectors may offer asymmetric returns for those willing to navigate the near-term turbulence.

Source:
[1] Morningstar US Consumer Cyclical Index [https://www.morningstar.com/stocks/best-cyclical-stocks-buy]
[2] Job Openings and Labor Turnover Summary [https://www.bls.gov/news.release/jolts.nr0.htm]
[3] US Job Market Cools: July Openings Fall to 7.2 Million [https://scanx.trade/stock-market-news/global/us-job-market-cools-july-openings-fall-to-7-2-million/18455423]
[4] Labor Market Recap May 2025 [https://www.employamerica.org/jobs-day/labor-market-recap-may-2025/]
[5] Hanesbrands Inc. Reports Strong Q2 2025 Results [https://www.theglobeandmail.com/investing/markets/stocks/HBI/pressreleases/34018381/hanesbrands-inc-reports-strong-q2-2025-results/]